Income obtained by a branch in Spain of a non-resident company is taxed at the standard CIT rate of 25%.
When calculating the tax base for taxpayers resident in other EU member states that do not have a PE, a distinction is made between companies and individuals, and tax-deductible expenses are established in accordance with CIT and PIT legislation, respectively.
Payments made by a branch to its foreign head office or a PE of its head office for royalties, interest, commissions, or technical assistance fees are not tax deductible. Management and general administrative expenses incurred by the head office that can be allocated to the branch are tax deductible if the payments for these expenses are made following criteria of continuity and rationality and provided that certain documentary requirements and other formalities are fulfilled.
Under Spanish law, income obtained by a branch that is repatriated to its head office is taxed at source at the general withholding tax (WHT) rate of 19%. This tax is not chargeable in the case of a PE of a company resident in the European Union (unless the company is resident in a tax haven). Most DTTs signed by Spain do not establish any provisions on this matter, and, in these cases, no tax is chargeable on the income repatriated by branches. Some DTTs, such as those with Canada, Indonesia, and the United States (US), do establish a tax on income repatriated by branches. For example, US head offices are taxed at a 10% rate on the repatriated profits of a Spanish branch under the US/Spanish DTT.